Chapter 1

Operations and Supply Chain Management Introduction

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Lecture Outline
What Operations and Supply Chain Managers Do Operations Function Evolution of Operations and Supply Chain Management Globalization and Competitiveness Operations Strategy and Organization of the Text Learning Objectives for This Course

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What Operations and Supply Chain Managers Do

What is Operations Management?
design, operation, and improvement of productive systems

What is Operations?
a function or system that transforms inputs into outputs of greater value

What is a Transformation Process?

a series of activities along a value chain extending from supplier to customer activities that do not add value are superfluous and should be eliminated

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Transformation Process
Physical: as in manufacturing operations Locational: as in transportation or warehouse operations Exchange: as in retail operations Physiological: as in health care Psychological: as in entertainment Informational: as in communication

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Operations as a Transformation Process

INPUT Material Machines Labor Management Capital

TRANSFORMATION PROCESS

OUTPUT Goods Services

Feedback & Requirements

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Operations Function
Operations Marketing Finance and Accounting Human Resources Outside Suppliers

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How is Operations Relevant to my Major?

Accounting As an auditor you must understand the fundamentals of operations management.

Information Technology
Management

IT is a tool, and theres no better place to apply it than in operations.

We use so many things you learn in an operations classscheduling, lean production, theory of constraints, and tons of quality tools.

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How is Operations Relevant to my Major?

Economics Its all about processes. I live by flowcharts and Pareto analysis. How can you do a good job marketing a product if youre unsure of its quality or delivery status? Most of our capital budgeting requests are from operations, and most of our cost savings, too.

Marketing

Finance

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Evolution of Operations and Supply Chain Management

Craft production
process of handcrafting products or services for individual customers

Division of labor
dividing a job into a series of small tasks each performed by a different worker

Interchangeable parts
standardization of parts initially as replacement parts; enabled mass production

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Evolution of Operations and Supply Chain Management

Scientific management
systematic analysis of work methods

Mass production
high-volume production of a standardized product for a mass market

Lean production
adaptation of mass production that prizes quality and flexibility

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Historical Events in Operations Management

Era
Industrial Revolution

Events/Concepts
Steam engine Division of labor Interchangeable parts Principles of scientific management

Dates
1769 1776 1790 1911

Originator
James Watt Adam Smith Eli Whitney Frederick W. Taylor

Scientific Management

Time and motion studies Activity scheduling chart Moving assembly line

1911 1912 1913

Frank and Lillian Gilbreth Henry Gantt

Henry Ford

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Historical Events in Operations Management

Era
Human Relations

Events/Concepts
Hawthorne studies

Dates
1930 1940s 1950s 1960s 1947 1951

Originator
Elton Mayo Abraham Maslow Frederick Herzberg Douglas McGregor George Dantzig Remington Rand

Motivation theories
Linear programming Digital computer Simulation, waiting line theory, decision theory, PERT/CPM MRP, EDI, EFT, CIM

Operations Research

1950s
1960s, 1970s

Operations research groups

Joseph Orlicky, IBM and others

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Historical Events in Operations Management

Era Events/Concepts Dates Originator
1970s 1980s 1980s 1990s 1990s Taiichi Ohno (Toyota) W. Edwards Deming, Joseph Juran Wickham Skinner, Robert Hayes Michael Hammer, James Champy GE, Motorola JIT (just-in-time) TQM (total quality management) Strategy and Quality Revolution operations Reengineering Six Sigma

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Historical Events in Operations Management

Era
Internet Revolution

Events/Concepts

Dates Originator
ARPANET, Tim Berners-Lee SAP, i2 Technologies, ORACLE, Dell Amazon, Yahoo, eBay, Google, and others China, India, emerging economies

Internet, WWW, ERP, 1990s supply chain management

E-commerce

2000s

Globalization

WTO, European Union, Global supply chains, Outsourcing, Service Science

1990s 2000s

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Historical Events in Operations Management

Era
Green Revolution

Events/Concepts
Global warming, An Inconvenient Truth, Kyoto

Dates Originator
Today Numerous scientists, statesmen and governments

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Evolution of Operations and Supply Chain Management

Supply chain management
management of the flow of information, products, and services across a network of customers, enterprises, and supply chain partners

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Globalization
Why go global?
favorable cost access to international markets response to changes in demand reliable sources of supply latest trends and technologies

Increased globalization
results from the Internet and falling trade barriers

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Hourly Compensation

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GDP per Capita

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Trade in Goods, % of GDP

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Productivity and Competitiveness

Competitiveness
degree to which a nation can produce goods and services that meet the test of international markets

Productivity
ratio of output to input

Output
sales made, products produced, customers served, meals delivered, or calls answered

Input
labor hours, investment in equipment, material usage, or square footage

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Measures of Productivity

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Osborne Industries

C6*C8 C7*C9 C5/C6 C5/C7 C5/C13

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Productivity Growth

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Percent Change in Input and Output

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Strategy and Operations

How the mission of a company is accomplished Provides direction for achieving a mission Unites the organization Provides consistency in decisions Keeps organization moving in the right direction

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Strategy Formulation
1. Defining a primary task What is the firm in the business of doing? 2. Assessing core competencies What does the firm do better than anyone else? 3. Determining order winners and order qualifiers What qualifies an item to be considered for purchase? What wins the order? 4. Positioning the firm How will the firm compete? 5. Deploying the strategy

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Strategic Planning
Mission and Vision

Corporate Strategy

Marketing Strategy

Operations Strategy

Financial Strategy

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Order Winners and Order Qualifiers

Source: Adapted from Nigel Slack, Stuart Chambers, Robert Johnston, and Alan Betts, Operations and Process Management, Prentice Hall, 2006, p. 47

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Positioning the Firm

Cost Speed Quality Flexibility

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Positioning the Firm: Cost

Waste elimination
relentlessly pursuing the removal of all waste

Examination of cost structure

looking at the entire cost structure for reduction potential

Lean production
providing low costs through disciplined operations

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Positioning the Firm: Speed

Fast moves, Fast adaptations, Tight linkages Internet
Customers expect immediate responses

Service organizations
always competed on speed (McDonalds, LensCrafters, and Federal Express)

Manufacturers
time-based competition: build-to-order production and efficient supply chains

Fashion industry
two-week design-to-rack lead time of Spanish retailer, Zara

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Positioning the Firm: Quality

Minimizing defect rates or conforming to design specifications Ritz-Carlton - one customer at a time
Service system designed to move heaven and earth to satisfy customer Employees empowered to satisfy a guests wish Teams set objectives and devise quality action plans

Each hotel has a quality leader

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Positioning the Firm: Flexibility

Ability to adjust to changes in product mix, production volume, or design

Mass customization: the mass production of customized parts

National Bicycle Industrial Company
offers 11,231,862 variations delivers within two weeks at costs only 10% above standard models

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Policy Deployment
Policy deployment
translates corporate strategy into measurable objectives

Hoshins
action plans generated from the policy deployment process

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Policy Deployment

Derivation of an Action Plan Using Policy Deployment

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Balanced Scorecard
Balanced scorecard
measuring more than financial performance

1.finances 2.customers 3.processes 4.learning and growing Key performance indicators

set of measures to help managers evaluate performance in critical areas

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Balanced Scorecard Worksheet

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Balanced Scorecard

Radar Chart

Dashboard

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Operations Strategy
Services Products Human Resources Process and Technology

Capacity

Quality

Facilities

Sourcing

Operating Systems

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Organization of This Text: Part I Operations Management

1. Operations and Supply Chain Management Introduction 2. Quality and Quality Management 3. Process Capability and Statistical Process Control 4. Designing Products 5. Designing Services 6. Processes and Technology 7. Capacity and Facilities Planning 8. Human Resources in Operations Management 9. Managing Projects

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Organization of This Text: Part II Supply Chain Management

10. Strategic Supply Chain Management and Design 11. Supply Chain Procurement and Distribution Globalization 12. Forecasting 13. Role of Inventory Management 14. Aggregate Sales and Operations Planning 15. Resource Planning Systems 16. Lean System Methods 17. Scheduling

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Learning Objectives of this Course

Gain an appreciation of strategic importance of operations and supply chain management in a global business environment Understand how operations relates to other business functions Develop a working knowledge of concepts and methods related to designing and managing operations and supply chains Develop a skill set for continuous improvement

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Copyright 2011 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in section 117 of the 1976 United States Copyright Act without express permission of the copyright owner is unlawful. Request for further information should be addressed to the Permission Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages caused by the use of these programs or from the use of the information herein.

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